Hey All,
Curious to hear your thoughts on how you would evaluate/approach joining a newly launched HF. When I say newly launched, I mean NEWLY launched (~2 others including the PM and <$15M in AUM).
I was approached by a PM who liked my background and feels it would be a good fit. While it seems like an exciting opportunity to get in early and grow with the firm, there are definitely some material risks as most new funds don't stay open for very long..
I'd imagine, based on the small size and limited track record, the firm probably is not generating a whole lot of fees. Would you consider asking for equity or a revenue share to make it worthwhile?
Curious to hear your feedback - how would you approach making the same decision?
I wouldn't. Small funds have a lot of problems that I plan to write an article about it.
$15mm is TINY. Personally, I would see that as a red flag. If you have a track record, good name in the industry, etc you should be able to come up with much more than that.
At that AUM you are going to struggle to get the resources you need to even do the proper research. Assuming they are able to charge 2% management fee (that may be too high) you have $300k fixed fees to cover all costs (rent, salary, Bloomberg/other resources). That means salaries are either going to be very low, or someone is paying out of pocket. I would say the risk of failure is pretty big (one investor pulls money and what are you left with?)
Additionally, the founders are going to want to keep as much of the equity as possible as that’s the only way they’ll hit it big. If you did join I would 100% have my pay tied to some equity like structure because that’s where the money is.
I agree - I'd pass too if I did not receive some sort of equity etc. Based on what I could dig up it looks like their AUM is actually ~$10M.
The founders background does look solid which makes me curious as to why finding investors has been a struggle (will be having another convo regarding this).
Do you have any examples of equity/revenue share that you're able to provide? Just trying to get a sense for how these are usually structured and at what % for junior-level members.
You would need a lot of equity to make it work and equity for junior people is not standard (and getting a lot is basically unheard of). $10mm is a personal trading account not a HF. Imagine a 40% return, you collect 20% of that, that’s only $800k that isn’t enough to make a founder happy, if you want a $100k bonus on that you are taking 12.5% of the performance fee, no one will agree to that.
Honestly $10mm isn’t a hedge fund, the overhead cost alone is going to kill any profits.
No. That is way too small. I wouldn't join a fund with less than $1B unless there was some extenuating circumstance
Only worth joining if you can get like 20%+ equity (assuming you would be successful over 5+ years, you can make a lot of $$$), or else it's not worth it.
In HF it’s really hard to make the math work on such a small fund. Do they have another source of income to pay you out of? Even $100mm would be too small in HF.
Keep in mind this isn’t the 1990s, much more compliance + expectations around reporting now.
Removed for anonymity.
I have more than $10mm and I sure as hell wouldn't hire anyone for my personal account.
Hard pass.
15 million?? My universities student run investment fund has more AUM than that
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